Bank of Communications Offers Aussie Conversion

SYDNEY—China's Bank of Communications Co. plans to let clients convert the Aussie dollar directly into yuan in Australia from next year, the head of its Sydney-based subsidiary said.

The two countries agreed last month to allow each other's currencies to be directly converted, making Australia only the third country to have such an arrangement with Beijing. China's fifth-largest bank by assets, also known as BoCom, is among seven Chinese and two Australian banks licensed by the People's Bank of China to act as market makers for direct trading of the currencies. It already offers the service in China.

Yu Hongde, BoCom's Australian general manager, hopes the agreement will encourage more business and cross-border investments between the two countries. China is Australia's biggest trade partner, buying vast quantities of raw materials such as iron ore and coal to help fuel its steel mills and power plants.

"Australia is taking a more important role in the world economy, especially the Asia Pacific region," Mr. Yu told The Wall Street Journal Thursday. "With the currency agreement the growth of trade between Australia and China will continue."

About a quarter of Australia's exports go to China. The currency agreement does away with the need for companies and currency traders to first convert their Australian dollars or yuan into U.S. dollars, cutting down on transaction costs.

The two countries have been increasingly open in their financial dealings in recent times. Australia's central bank last month said it would invest in China's sovereign bonds for the first time, capping a string of agreements aimed at deepening economic ties.

Asian banks now account for nearly a quarter of Australia's syndicated loan market, up from 13% in 2007, according to the Reserve Bank of Australia, filling a space vacated by European lenders who've retreated from the region amid ongoing debt worries in their home markets.

Mr. Yu said BoCom hopes to roughly triple its Australian assets to about 3 billion Australian dollars (US$3.06 billion) by the end of next year, singling out the country as a priority in its global expansion. In particular, the bank is increasing syndicated lending and trade finance for Chinese companies investing in the energy and agriculture sectors, which Mr. Yu expects to be among Australia's fastest-growing industries in the coming years.

"In the very beginning the branch here dealt with clients mainly in the mining sector," Mr. Yu said. "Nowadays we look to diversify, not only focusing on the mining sector but also in the energy sector, especially the clean-energy sector, and agriculture industry."

BoCom is currently considering whether to provide up to A$100 million of syndicated lending to the Gullen Range Wind Farm in New South Wales, which is run by a subsidiary of China's largest wind turbine generator Xinjiang Goldwind Science & Technology Co. Ltd.

Chinese investment in agriculture has been a particular source of contention among some Australian lawmakers. Tensions over the issue came to head last year following the purchase of a giant cotton farm called Cubbie Station by a Chinese-led consortium.

The main opposition Liberal-National coalition, tipped by voter polls to win a Sept. 14 general election, has promised to lower the dollar-value at which agriculture investments would be scrutinized by regulators if it wins power.

Mr. Yu said Chinese companies have changed their investment strategies in the face of political controversy, and now prefer to take minority stakes in companies or create joint ventures, rather than buying them outright. While that change has softened Australian attitudes to Chinese investors, he said Canberra needs to do more to encourage Chinese investment in the future.

"The Australian government needs to do more to encourage international investors, to give them more support," he said. "Governments should realize that cooperation between the two countries is more important than other, conflicting areas."

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